EXHIBIT 2
STOCK PURCHASE AGREEMENT
AMONG
GEOKINETICS INC.,
RELIABLE EXPLORATION, INC.
AND
THE HOLDERS OF THE
CAPITAL STOCK OF
RELIABLE EXPLORATION , INC.
DECEMBER 3, 1997
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TABLE OF CONTENTS
Page
ARTICLE I.
GENERAL................................................................1
1.1 DEFINITIONS......................................................1
1.2 AGREEMENT TO PURCHASE AND SELL ACQUIRED SHARES...................5
1.3 PURCHASE PRICE...................................................5
1.4 DEBT RESTRUCTURING...............................................5
1.5 EMPLOYMENT AGREEMENTS............................................5
1.6 REGISTRATION RIGHTS AGREEMENT....................................6
1.7 EMPLOYEES........................................................6
1.8 THE CLOSING......................................................6
1.9 DELIVERIES AT THE CLOSING........................................6
1.10 TAX ELECTION.....................................................6
ARTICLE II.
REPRESENTATIONS AND WARRANTIES.........................................6
2.1 REPRESENTATIONS AND WARRANTIES OF THE SELLERS....................6
(a) AUTHORIZATION OF TRANSACTION...............................7
(b) NONCONTRAVENTION...........................................7
(c) BROKERS' FEES..............................................7
(d) ACQUIRED SHARES............................................7
(e) RESTRICTED SECURITIES......................................7
2.2 REPRESENTATIONS AND WARRANTIES OF THE BUYER......................8
(a) ORGANIZATION OF THE BUYER..................................8
(b) AUTHORIZATION OF TRANSACTION...............................8
(c) NONCONTRAVENTION...........................................8
(d) BROKERS' FEES..............................................9
(e) INVESTMENT.................................................9
(f) BUYER COMMON STOCK.........................................9
2.3 REPRESENTATIONS AND WARRANTIES CONCERNING THE COMPANY............9
(a) ORGANIZATION, QUALIFICATION, AND CORPORATE POWER...........9
(b) AUTHORIZATION OF TRANSACTION..............................10
(c) CAPITALIZATION............................................10
(d) NONCONTRAVENTION..........................................10
(e) BROKERS' FEES.............................................10
(f) TITLE TO ASSETS...........................................10
(g) NO SUBSIDIARIES, ETC......................................11
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(h) FINANCIAL STATEMENTS......................................11
(i) EVENTS SUBSEQUENT TO MOST RECENT FISCAL YEAR END..........11
(j) UNDISCLOSED LIABILITIES...................................12
(k) LEGAL COMPLIANCE..........................................12
(l) TAX MATTERS...............................................12
(m) REAL PROPERTY.............................................13
(o) SOFTWARE..................................................14
(p) BUSINESS ACTIVITY.........................................14
(q) TANGIBLE ASSETS...........................................14
(r) CONTRACTS.................................................15
(s) NOTES AND ACCOUNTS RECEIVABLE.............................16
(t) POWERS OF ATTORNEY........................................16
(u) INSURANCE.................................................16
(v) LITIGATION................................................17
(w) WARRANTY..................................................17
(x) EMPLOYEES.................................................17
(y) EMPLOYEE BENEFITS.........................................17
(z) GUARANTIES................................................17
(aa) ENVIRONMENT, HEALTH, AND SAFETY...........................17
(bb) CERTAIN BUSINESS RELATIONSHIPS............................17
(cc) DISCLOSURE................................................18
ARTICLE III.
CONDUCT AND TRANSACTIONS PRIOR TO CLOSING.............................18
3.1 GENERAL.........................................................18
3.2 NOTICES AND CONSENTS............................................18
3.3 OPERATION OF BUSINESS...........................................18
3.4 PRESERVATION OF BUSINESS........................................18
3.5 FULL ACCESS.....................................................19
3.6 NOTICE OF DEVELOPMENTS..........................................19
3.7 EXCLUSIVITY.....................................................19
3.8 CONFIDENTIALITY.................................................19
ARTICLE IV.
POST-CLOSING COVENANTS................................................20
4.1 GENERAL.........................................................20
4.2 LITIGATION SUPPORT..............................................20
4.3 TRANSITION......................................................20
4.4 COMPLIANCE WITH SECURITIES LAWS.................................21
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ARTICLE V.
CONDITIONS OF CLOSING.................................................21
5.1 CONDITIONS OF OBLIGATIONS OF THE BUYER..........................21
5.2 CONDITIONS OF OBLIGATIONS OF THE SELLERS........................23
ARTICLE VI.
REMEDIES FOR BREACHES OF AGREEMENT....................................24
6.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES......................24
6.2 INDEMNIFICATION PROVISIONS FOR BENEFIT OF THE BUYER.............24
6.3 INDEMNIFICATION PROVISIONS FOR BENEFIT OF THE SELLERS...........25
6.4 MATTERS INVOLVING THIRD PARTIES.................................25
6.5 OTHER INDEMNIFICATION PROVISIONS................................26
ARTICLE VII.
MISCELLANEOUS.........................................................26
7.1 TERMINATION OF AGREEMENT........................................26
7.2 EFFECT OF TERMINATION...........................................27
7.3 PRESS RELEASES AND PUBLIC ANNOUNCEMENTS.........................27
7.4 NO THIRD-PARTY BENEFICIARIES....................................27
7.5 ENTIRE AGREEMENT................................................27
7.6 SUCCESSION AND ASSIGNMENT.......................................27
7.7 COUNTERPARTS....................................................28
7.8 HEADINGS........................................................28
7.9 NOTICES.........................................................28
7.10 GOVERNING LAW...................................................29
7.11 AMENDMENTS AND WAIVERS..........................................29
7.12 SEVERABILITY....................................................29
7.13 EXPENSES........................................................29
7.14 CONSTRUCTION....................................................29
7.15 INCORPORATION OF EXHIBITS AND SCHEDULES.........................29
7.16 SPECIFIC PERFORMANCE............................................29
7.17 SUBMISSION TO JURISDICTION......................................30
7.18 ATTORNEYS' FEES.................................................30
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EXHIBITS:
Exhibit 1.3A Escrow Agreement
Exhibit 1.3B Allocation of Purchase Price
Exhibit 1.5A Employment Agreement
Exhibit 1.5B Employment Agreement
Exhibit 1.5C Employment Agreement
Exhibit 1.6 Registration Rights Agreement
Exhibit 2.3(h) Financial Statements
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STOCK PURCHASE AGREEMENT
This Stock Purchase Agreement (this "AGREEMENT") is made and entered into
as of December 3, 1997, by and among Geokinetics Inc., a Delaware corporation
(the "BUYER"), Reliable Exploration, Inc. a Montana corporation (the "COMPANY"),
and the holders of all of the outstanding capital stock of the Company (the
"SELLERS"). The Buyer, the Sellers and the Company are sometimes referred to
collectively herein as the "PARTIES."
The Company is engaged in the business of conducting 2-D and 3-D seismic
surveys of oil and gas prospects (the "BUSINESS").
The Sellers own 600 shares of the issued and outstanding common stock of
the Company, $.10 par value per share (the "COMMON STOCK"), representing all of
the issued and outstanding capital stock of the Company.
This Agreement contemplates a transaction in which the Buyer will purchase
from the Sellers, and the Sellers will sell to the Buyer all of the shares of
the Common Stock in return for cash and shares of the Buyer's common stock, $.01
par value per share ("BUYER COMMON STOCK").
NOW, THEREFORE, in consideration of the premises and the mutual promises
herein made, and in consideration of the representations, warranties, and
covenants herein contained, the Parties agree as follows.
ARTICLE I.
GENERAL
1.1 DEFINITIONS. Unless otherwise stated in this Agreement, capitalized
terms shall have the following meanings:
"ACQUIRED SHARES" means 600 shares of Common Stock of the Company owned by
the Sellers, representing one hundred percent (100%) of the total issued and
outstanding shares of the capital stock of the Company.
"ADVERSE CONSEQUENCES" means all actions, suits, proceedings, hearings,
investigations, charges, complaints, claims, demands, injunctions, judgments,
orders, decrees, rulings, damages, dues, penalties, fines, costs, amounts paid
in settlement, Liabilities, obligations, Taxes, liens, losses, expenses, and
fees, including court costs and attorneys' fees and expenses.
"AFFILIATE" has the meaning set forth in Rule 12-2 of the regulations
promulgated by the Securities and Exchange Commission under the Securities
Exchange Act.
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"AFFILIATED GROUP" means any affiliated group within the meaning of
Section 1504 of the Code or any similar group defined under a similar provision
of state, local or foreign law.
"AGREEMENT" has the meaning set forth in the first paragraph above.
"BASIS" means any past or present fact, situation, circumstance, status,
condition, activity, practice, plan, occurrence, event, incident, action,
failure to act, or transaction that forms or could form the basis for any
specified consequence.
"BUYER" has the meaning set forth in the first paragraph above.
"BUYER COMMON STOCK" has the meaning set forth in the fourth paragraph
above.
"CLOSING" has the meaning set forth in Section 1.8 below.
"CLOSING DATE" has the meaning set forth in Section 1.8 below.
"CODE" means the Internal Revenue Code of 1986, as amended.
"COMMON STOCK" means the common stock, $.10 par value per share, of the
Company.
"COMPANY" has the meaning set forth in the first paragraph above.
"CONFIDENTIAL INFORMATION" has the meaning set forth in Section 3.8 below.
"DEBT RESTRUCTURING" has the meaning set forth in Section 1.4 below.
"DISCLOSURE SCHEDULE" has the meaning set forth in Section 2.3 below.
"EMPLOYEE BENEFIT PLAN" means any (a) non-qualified deferred compensation
or retirement plan or arrangement which is an Employee Pension Benefit Plan, (b)
qualified defined contribution retirement plan or arrangement which is an
Employee Pension Benefit Plan, (c) qualified defined benefit retirement plan or
arrangement which is an Employee Pension Benefit Plan (including any
Multiemployer Plan), or (d) Employee Welfare Benefit Plan or material fringe
benefit plan or program.
"EMPLOYEE PENSION BENEFIT PLAN" has the meaning set forth in Section 3(2)
of ERISA.
"EMPLOYEE WELFARE BENEFIT PLAN" has the meaning set forth in Section 3(1)
of ERISA.
"EMPLOYMENT AGREEMENTS" has the meaning set forth in Section 1.5 below.
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"ENVIRONMENTAL, HEALTH, AND SAFETY LAWS" means the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, the Resource
Conservation and Recovery Act of 1976, and the Occupational Safety and Health
Act of 1970, each as amended, together with all other laws (including rules,
regulations, codes, plans, injunctions, judgments, orders, decrees, rulings, and
charges thereunder) of federal, state, local, and foreign governments (and all
agencies thereof) concerning pollution or protection of the environment, public
health and safety, or employee health and safety, including laws relating to
emissions, discharges, releases, or threatened releases of pollutants,
contaminants, or chemical, industrial, hazardous, or toxic materials or wastes
into ambient air, surface water, ground water, or lands or otherwise relating to
the manufacture, processing, distribution, use, treatment, storage, disposal,
transport, or handling of pollutants, contaminants, or chemical, industrial,
hazardous, or toxic materials or wastes.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"ESCROW AGREEMENT" has the meaning set forth in Section 1.3 below.
"FIDUCIARY" has the meaning set forth in Section 3(21) of ERISA.
"FINANCIAL STATEMENTS" has the meaning set forth in Section 2.3(h) below.
"GAAP" means United States generally accepted accounting principles as in
effect from time to time.
"INDEMNIFIED PARTY" has the meaning set forth in Section 6.4 below.
"INDEMNIFYING PARTY" has the meaning set forth in Section 6.4 below.
"INTELLECTUAL PROPERTY" means (a) all inventions (whether patentable or
unpatentable and whether or not reduced to practice), all improvements thereto,
and all patents, patent applications, and patent disclosures, together with all
reissuances, continuations, continuations-in-part, revisions, extensions, and
reexaminations thereof, (b) all trademarks, service marks, trade dress, logos,
trade names, and corporate names, together with all translations, adaptations,
derivations, and combinations thereof and including all goodwill associated
therewith, and all applications, registrations, and renewals in connection
therewith, (c) all copyrightable works, all copyrights, and all applications,
registrations, and renewals in connection therewith, (d) all mask works and all
applications, registrations, and renewals in connection therewith, (e) all trade
secrets and confidential business information (including ideas, research and
development, know-how, formulas, compositions, seismic data bases, manufacturing
and production processes and techniques, technical data, designs, drawings,
specifications, customer and supplier lists, pricing and cost information, and
business and marketing plans and proposals), (f) all computer software
(including data and related documentation), (g) all other proprietary rights,
and (h) all copies and tangible embodiments thereof (in whatever form or
medium).
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"KNOWN" OR "KNOWLEDGE" means that whenever a statement regarding the
existence or absence of facts in this Agreement is qualified by a phrase such as
"to such Person's knowledge" or "known by such Person," the Parties intend that
the information to be attributed to such Person is information that is actually
or constructively known to (a) the Person in the case of an individual, or (b)
in the case of a corporation or other entity, an officer or an employee who
devoted substantive attention to matters of such nature during the ordinary
course of his employment. A Person has "constructive knowledge" of those matters
which the individual involved could reasonably be expected to have as a result
of undertaking an investigation of such a scope and extent as a reasonably
prudent man would undertake concerning the particular subject matter.
"LETTER OF INTENT" means that certain letter dated September 9, 1997
executed among Sellers, the Company and Buyer.
"LIABILITY" means any liability (whether known or unknown, whether
asserted or unasserted, whether absolute or contingent, whether accrued or
unaccrued, whether liquidated or unliquidated, and whether due or to become
due), including any liability for Taxes.
"MOST RECENT BALANCE SHEET" means the balance sheet contained within the
Most Recent Financial Statements.
"MOST RECENT FINANCIAL STATEMENTS" has the meaning set forth in Section
2.3(h) below.
"MOST RECENT FISCAL YEAR END" has the meaning set forth in Section 2.3(h)
below.
"MULTIEMPLOYER PLAN" has the meaning set forth in Section 3(37) of ERISA.
"ORDINARY COURSE OF BUSINESS" means the ordinary course of business
consistent with past custom and practice (including with respect to quantity and
frequency).
"PARTY" has the meaning set forth in the first paragraph above.
"PERSON" means an individual, a partnership, a corporation, an
association, a joint stock company, a trust, a joint venture, an unincorporated
organization, or a governmental entity (or any department, agency, or political
subdivision thereof).
"PROCESS AGENT" has the meaning set forth in Section 7.17 below.
"PURCHASE PRICE" has the meaning set forth in Section 1.3 below.
"REQUISITE SELLERS" means Sellers holding a majority in interest of the
Acquired Shares as set forth in Section 2.3(c) of the Disclosure Schedule.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
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"SECURITIES EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
"SECURITY INTEREST" means any mortgage, deed of trust, pledge, lien,
encumbrance, charge, or other security interest, other than (a) mechanic's,
materialmen's, and similar liens, (b) liens for Taxes not yet due and payable,
(c) purchase money liens and liens securing rental payments under capital lease
arrangements, and (d) other liens arising in the Ordinary Course of Business and
not incurred in connection with the borrowing of money.
"SELLER" has the meaning set forth in the first paragraph above.
"SUBSIDIARY" means any corporation with respect to which a specified
Person (or a Subsidiary thereof) owns a majority of the common stock or has the
power to vote or direct the voting of sufficient securities to elect a majority
of the directors.
"TAX" means any federal, state, local, or foreign income, gross receipts,
license, payroll, employment, excise, severance, stamp, occupation, premium,
windfall profits, environmental (including taxes under Code Sec. 59A), customs
duties, capital stock, franchise, profits, withholding, social security (or
similar), unemployment, disability, real property, personal property, sales,
use, transfer, registration, value added, alternative or add-on minimum,
estimated, or other tax of any kind whatsoever, including any interest, penalty,
or addition thereto, whether disputed or not.
"TAX RETURN" means any return, declaration, report, claim for refund, or
information return or statement relating to Taxes, including any schedule or
attachment thereto, and including any amendment thereof.
"THIRD PARTY CLAIM" has the meaning set forth in Section 6.4(a) below.
1.2 AGREEMENT TO PURCHASE AND SELL ACQUIRED SHARES. On and subject to the
terms and conditions of this Agreement, the Buyer agrees to purchase from the
Sellers, and the Sellers agree to sell to the Buyer, all of the Acquired Shares
for the consideration specified below in Section 1.3.
1.3 PURCHASE PRICE. In consideration for the delivery of the Acquired
Shares, Buyer agrees to pay and deliver to the Sellers at the Closing the
aggregate consideration (the "PURCHASE PRICE") consisting of (i) $1,300,000 in
cash payable to the Sellers by wire transfer or delivery of immediately
available funds and (ii) 375,000 shares of validly issued, fully paid and
nonassessable shares of Buyer Common Stock; PROVIDED, HOWEVER that Buyer will
deposit $225,000 of the cash comprising the Purchase Price with Xxxx Xxxxx, an
escrow agent ("Escrow Agent") approved by both Buyer and Sellers pursuant to an
escrow agreement in substantially the form attached as EXHIBIT 1.3A (the "ESCROW
AGREEMENT"). The Purchase Price shall be allocated among the Sellers in the
manner set forth on EXHIBIT 1.3B attached hereto.
1.4 DEBT RESTRUCTURING. Concurrently with and as a condition to the
Closing, the Sellers shall cause the Company to refinance and restructure all of
the Company's debt obligations to Xxxxxx
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X. Xxxxx on terms and conditions satisfactory to the Buyer and the Sellers (the
"DEBT RESTRUCTURING").
1.5 EMPLOYMENT AGREEMENTS. At the Closing, immediately following Buyer's
acquisition of the Acquired Shares, the Company and each of the Sellers shall
execute and deliver an Employment Agreement in substantially the form attached
as Exhibits 1.5A, 1.5B or 1.5C (the "EMPLOYMENT AGREEMENTS"), providing for the
employment of each of the Sellers with the Company for an initial term of two
years.
1.6 REGISTRATION RIGHTS AGREEMENT. At the Closing, immediately following
Buyer's acquisition of the Acquired Shares, Buyer and each of the Sellers shall
execute and deliver the Registration Rights Agreement in substantially the form
attached as EXHIBIT 1.6.
1.7 EMPLOYEES. Prior to or at the Closing, Sellers will permit or cause
the Company to permit Buyer to offer continued employment to some or all of the
individuals that are employees of the Company immediately prior to Closing. The
Buyer shall have full and absolute discretion in determining the terms,
conditions and benefits relating to such employment. Nothing contained in this
Agreement shall obligate the Buyer to continue the employment of any employee,
nor is this Section 1.7 intended to create any claim or right on the part of the
employee of the Company and no such employee shall be entitled to assert any
such claim.
1.8 THE CLOSING. The closing of the transactions contemplated by this
Agreement (the "CLOSING") shall take place at the offices of Chamberlain,
Hrdlicka, White, Xxxxxxxx & Xxxxxx in Houston, Texas, commencing at 9:00 a.m.
local time on January 6, or if later, the second business day following the
satisfaction or waiver of all conditions to the obligations of the Parties to
consummate the transactions contemplated hereby (other than conditions with
respect to actions the respective Parties will take at the Closing itself) or
such other date as the Buyer and the Seller may mutually determine (the "CLOSING
DATE"); provided, however, that the Closing Date shall be no later than January
9, 1998. The Closing shall be effective as of the commencement of business on
January 1, 1998.
1.9 DELIVERIES AT THE CLOSING. At the Closing, (i) the Sellers will
deliver to the Buyer the various certificates, instruments, and documents
referred to in Section 5.1 below, (ii) the Buyer will deliver to the Sellers the
various certificates, instruments, and documents referred to in Section 5.2
below, (iii) the Sellers will deliver to the Buyer stock certificates
representing all of the Acquired Shares, endorsed in blank or accompanied by
duly executed assignment documents, and (iv) the Buyer will deliver to the
Sellers the Purchase Price as specified in Section 1.3 above.
1.10 TAX ELECTION. At the election of Buyer, the Company and the Sellers
will consent to a Code Section 338(h)10 election, but to the extent that the
required allocation of purchase price to assets of the Company results in
ordinary income rather than capital gains to the Sellers, the purchase price
will be increased and additional cash will be paid to the Sellers to compensate
for any increased taxes payable by the Sellers as a result of the election. The
parties will mutually agree upon a fair
11
market value allocation of purchase price to assets of the Company prior to
closing and such allocation will be followed for all tax and financial reporting
purposes.
ARTICLE II.
REPRESENTATIONS AND WARRANTIES
2.1 REPRESENTATIONS AND WARRANTIES OF THE SELLERS. Each of the Sellers
represents and warrants to the Buyer, severally and not jointly, that the
statements contained in this Section 2.1 are correct and complete as of the date
of this Agreement and will be correct and complete as of the Closing Date (as
though made then and as though the Closing Date were substituted for the date of
this Agreement throughout this Section 2.1 with respect to each Seller).
(a) AUTHORIZATION OF TRANSACTION. The Seller has full power and
authority to execute and deliver this Agreement and to perform his
obligations hereunder. This Agreement constitutes the valid and legally
binding obligation of the Seller, enforceable in accordance with its terms
and conditions. The Seller need not give any notice to, make any filing
with, or obtain any authorization, consent, or approval of any government
or governmental agency in order to consummate the transactions
contemplated by this Agreement.
(b) NONCONTRAVENTION. Neither the execution and the delivery of this
Agreement, nor the consummation of the transactions contemplated hereby,
will (A) violate any constitution, statute, regulation, rule, injunction,
judgment, order, decree, ruling, charge, or other restriction of any
government, governmental agency, or court to which the Seller is subject
or, or (B) conflict with, result in a breach of, constitute a default
under, result in the acceleration of, create in any party the right to
accelerate, terminate, modify, or cancel, or require any notice under any
agreement, contract, lease, license, instrument, or other arrangement to
which the Seller is a party or by which it is bound or to which any of
Seller's assets is subject.
(c) BROKERS' FEES. The Seller has no Liability or obligation to pay
any fees or commissions to any broker, finder, or agent with respect to
the transactions contemplated by this Agreement for which the Buyer could
become liable or obligated.
(d) ACQUIRED SHARES. The Seller holds of record and owns
beneficially the Acquired Shares, free and clear of any restrictions on
transfer (other than any restrictions under the Securities Act and state
securities laws), Taxes, Security Interests, options, warrants, purchase
rights, contracts, commitments, equities, claims, and demands. The Seller
is not a party to any option, warrant, purchase right, or other contract
or commitment that could require the Seller to sell, transfer, or
otherwise dispose of any capital stock of the Company (other than as
contemplated in this Agreement). The Seller is not a party to any
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voting trust, proxy, or other agreement or understanding with respect to
the voting of any capital stock of the Company.
(e) RESTRICTED SECURITIES.
(i) The Seller acknowledges that the shares of Buyer Common
Stock which the Seller shall acquire pursuant this Agreement have
not been registered under the Securities Act, and are being acquired
for the Seller's own account for investment and not with a view to
the distribution thereof. The Buyer Common Stock will be subject to
the stock transfer restrictions described in Section 4.4 below.
(ii) The Seller has the knowledge and experience in financial
and business matters to enable him to evaluate the merits and risks
of approving this Agreement and the transactions contemplated herein
and acquiring shares of Buyer Common Stock.
(iii) The Seller is able to bear the economic risks of his
investment in the Buyer Common Stock.
(iv) The Seller has been represented by legal counsel in this
transaction and the Seller and his advisors, including such counsel,
have been given the opportunity to ask questions of, and receive
answers from, the officers of the Buyer concerning the terms of the
transactions contemplated by this Agreement and the affairs and the
business and financial condition of the Buyer.
(v) The Seller has received copies of Buyer's most recent Form
10-KSB and each report or document subsequently filed by the Buyer
with the Securities and Exchange Commission pursuant to the
Securities Exchange Act, and the Seller and his advisors have been
given access to all documents, books and additional information
concerning the Buyer which they have requested regarding the Buyer.
(vi) The Seller has made such inquiries by himself and through
his advisors in making a decision to approve this Agreement and the
transactions contemplated herein as the Seller has deemed necessary
and advisable.
(vii) The Seller acknowledges and agrees that the Buyer Common
Stock issued to the Seller may not be disposed of except in
accordance with the requirements of the Securities Act and any
applicable state securities laws.
2.2 REPRESENTATIONS AND WARRANTIES OF THE BUYER. The Buyer represents and
warrants to each of the Sellers that the statements contained in this Section
2.2 are correct and complete as of the date of this Agreement and will be
correct and complete as of the Closing Date (as though made
13
then and as though the Closing Date were substituted for the date of this
Agreement throughout this Section 2.2).
(a) ORGANIZATION OF THE BUYER. The Buyer is a corporation duly
organized, validly existing, and in good standing under the laws of the
State of Delaware.
(b) AUTHORIZATION OF TRANSACTION. Buyer has full corporate power and
authority to execute and deliver this Agreement and to perform its
obligations hereunder. This Agreement constitutes the valid and legally
binding obligation of the Buyer, enforceable in accordance with its terms
and conditions. The Buyer does not need to give any notice to, make any
filing with, or obtain any authorization, consent, or approval of any
government or governmental agency in order to consummate the transactions
contemplated by this Agreement.
(c) NONCONTRAVENTION. Neither the execution and the delivery of this
Agreement, nor the consummation of the transactions contemplated hereby,
will (A) violate any constitution, statute, regulation, rule, injunction,
judgment, order, decree, ruling, charge, or other restriction of any
government, governmental agency, or court to which the Buyer is subject or
any provision of its charter or bylaws or (B) conflict with, result in a
breach of, constitute a default under, result in the acceleration of,
create in any party the right to accelerate, terminate, modify, or cancel,
or require any notice under any agreement, contract, lease, license,
instrument, or other arrangement to which the Buyer is a party or by which
any of Buyer's assets is subject.
(d) BROKERS' FEES. The Buyer has no Liability or obligation to pay
any fees or commissions to any broker, finder, or agent with respect to
the transactions contemplated by this Agreement for which the Seller could
become liable or obligated.
(e) INVESTMENT. Buyer is purchasing the Acquired Shares for its own
account with the present intention of holding the Acquired Shares for
investment purposes and not with a view to or for sale in connection with
any distribution of the Acquired Shares in violation of any applicable
securities law. Buyer will refrain from transferring or otherwise
disposing of any of the Acquired Shares, or any interest therein, in such
manner as to cause Seller to be in violation of the registration
requirements of the Securities Act of 1933, as amended, or applicable
state securities or state blue sky law.
(f) BUYER COMMON STOCK. The shares of Buyer Common Stock to be
issued to Seller pursuant to Section 1.3 above will be validly issued,
fully paid and non-assessable.
2.3 REPRESENTATIONS AND WARRANTIES CONCERNING THE COMPANY. Each of the
Sellers and the Company, jointly and severally, represents and warrants to the
Buyer that the statements contained in this Section 2.3 are correct and complete
as of the date of this Agreement and will be correct and complete as of the
Closing Date (as though made then and as though the Closing Date
14
were substituted for the date of this Agreement throughout this Section 2.3),
except as set forth in the disclosure schedule delivered by the Seller to the
Buyer on the date hereof and initialed by the Parties (the "DISCLOSURE
SCHEDULE"). The Disclosure Schedule will be arranged in paragraphs corresponding
to the lettered and numbered paragraphs contained in this Section 2.3.
(a) ORGANIZATION, QUALIFICATION, AND CORPORATE POWER. The Company is
a corporation duly organized, validly existing, and in good standing under
the laws of the State of Montana. The Company is duly authorized to
conduct business and is in good standing under the laws of Montana, North
Dakota, Wyoming, New Mexico, Colorado, Utah, and Kansas where such
qualification is required. The Company has full corporate power and
authority and all licenses, permits, and authorizations necessary to carry
on the businesses in which it is engaged and to own and use the properties
owned and used by it. Section 2.3(a) of the Disclosure Schedule lists the
directors and officers of the Company. The Seller has delivered to the
Buyer correct and complete copies of the charter and bylaws of the
Company, as amended to date. The minute book (containing the records of
meetings of the shareholders, the board of directors, and any committees
of the board of directors), the stock certificate books, and the stock
record books of the Company are correct and complete. The Company is not
in default under or in violation of any provision of its charter or
bylaws.
(b) AUTHORIZATION OF TRANSACTION. The Company has full corporate
power and authority to execute and deliver this Agreement and to perform
its obligations hereunder. This Agreement constitutes the valid and
legally binding obligation of the Company, enforceable in accordance with
its terms and conditions.
(c) CAPITALIZATION. Section 2.3(c) of the Disclosure Schedule sets
forth a true and accurate schedule stating (i) the number of shares of
authorized capital stock of each class of its capital stock, (ii) the
number of issued and outstanding shares of each class of its capital
stock, the names of the holders thereof, and the number of shares held by
each such holder, and (iii) the number of shares of its capital stock held
in treasury. All of the issued and outstanding shares of the Company's
capital stock, including the Acquired Shares have been duly authorized,
are validly issued, fully paid, and nonassessable, and are held of record
by the respective Persons set forth in Section 2.3(c) of the Disclosure
Schedule. There are no outstanding or authorized options, warrants,
purchase rights, subscription rights, conversion rights, exchange rights,
or other contracts or commitments that could require the Company to issue,
sell, or otherwise cause to become outstanding any of its capital stock.
There are no outstanding or authorized stock appreciation, phantom stock,
profit participation, or similar rights with respect to the Company. There
are no voting trusts, proxies, or other agreements or understandings with
respect to the voting of the capital stock of the Company.
(d) NONCONTRAVENTION. Except as set forth in Section 2.3(d) of the
Disclosure Schedule, neither the execution and the delivery of this
Agreement, nor the consummation of the transactions contemplated hereby,
will (i) violate any constitution, statute, regulation, rule, injunction,
judgment, order, decree, ruling, charge, or other restriction of any
government,
15
governmental agency, or court to which the Company is subject or any
provision of the charter or bylaws of the Company or (ii) conflict with,
result in a breach of, constitute a default under, result in the
acceleration of, create in any party the right to accelerate, terminate,
modify, or cancel, or require any notice under any agreement, contract,
lease, license, instrument, or other arrangement to which the Company is a
party or by which it is bound or to which any of its assets is subject (or
result in the imposition of any Security Interest upon any of its assets).
The Company does not need to give any notice to, make any filing with, or
obtain any authorization, consent, or approval of any government or govern
mental agency in order for the Parties to consummate the transactions
contemplated by this Agreement.
(e) BROKERS' FEES. The Company has no liability or obligation to pay
any fees or commissions to any broker, finder, or agent with respect to
the transactions contemplated by this Agreement.
(f) TITLE TO ASSETS. The Company has good and marketable title to,
or a valid leasehold interest in, the properties and assets used by them,
located on their premises, or shown on the unaudited, reviewed balance
sheet as of August 31, 1997 or acquired after the date thereof, free and
clear of all Security Interests.
(g) NO SUBSIDIARIES, ETC. The Company does not own of record or
beneficially, directly or indirectly, (i) any shares of outstanding
capital stock or securities convertible into capital stock of any other
corporation or (ii) any interest in any partnership, joint venture,
limited liability company, or other non-corporate business enterprise.
(h) FINANCIAL STATEMENTS. Attached hereto as EXHIBIT 2.3(H) are the
following financial statements (collectively the "FINANCIAL STATEMENTS"):
(i) the reviewed balance sheet and statements of income, changes in
stockholders' equity, and cash flows as of and for the fiscal year ended
August 31, 1996 for the Company; and (ii) the reviewed balance sheet and
statements of income (the "MOST RECENT FINANCIAL STATEMENTS") as of and
for the fiscal year ended August 31, 1997 (the "MOST RECENT FISCAL YEAR
END") for the Company. The Financial Statements (including the notes
thereto) have been prepared in accordance with GAAP applied on a
consistent basis throughout the periods covered thereby, present fairly
the financial condition of the Company as of such dates and the results of
operations of the Company for such periods, are correct and complete, and
are consistent with the books and records of the Company (which books and
records are correct and complete).
(i) EVENTS SUBSEQUENT TO MOST RECENT FISCAL YEAR END. Since August
31, 1997, there has not been any adverse change in the Business, financial
condition, operations, results of operations, or future prospects of the
Company. Without limiting the generality of the foregoing, since that
date, except as set forth in Section 2.3(i) of the Disclosure Schedule,
the Company has not:
16
(i) imposed any Security Interests upon any of its assets,
tangible or intangible;
(ii) made any capital expenditure (or series of related
capital expenditures) involving more than $20,000;
(iii) issued any note, bond, or other debt security or
created, incurred, assumed, or guaranteed any indebtedness for
borrowed money or capitalized lease obligation;
(iv) delayed or postponed the payment of accounts payable and
other Liabilities;
(v) declared, set aside, or paid any dividend or made any
distribution with respect to its capital stock (whether in cash or
in kind) or redeemed, purchased, or otherwise acquired any of its
capital stock;
(vi) experienced or suffered any damage, destruction, or loss
(whether or not covered by insurance) to its property;
(vii) made any loan to, or entered into any other transaction
with, any of its directors, officers, and employees; or
(viii) become aware of any other material occurrence, event,
incident, action, failure to act, or transaction involving the
Company.
(j) UNDISCLOSED LIABILITIES. Except as described in Section 2.3(j)
of the Disclosure Schedule, the Company has no Liability (and there is no
Basis for any present or future action, suit, proceeding, hearing,
investigation, charge, complaint, claim, or demand against any of them
giving rise to any Liability), except for (i) Liabilities set forth on the
face of the Most Recent Balance Sheet (rather than in any notes thereto)
and (ii) Liabilities which have arisen after the Most Recent Fiscal Month
End in the Ordinary Course of Business (none of which results from, arises
out of, relates to, is in the nature of, or was caused by any breach of
contract, breach of warranty, tort, infringement, or violation of law).
(k) LEGAL COMPLIANCE. The Company, its Affiliates and their
respective predecessors have complied in all material respects with all
applicable laws (including rules, regulations, codes, plans, injunctions,
judgments, orders, decrees, rulings, and charges thereunder) of federal,
state, local, and foreign governments (and all agencies thereof), and no
action, suit, proceeding, hearing, investigation, charge, complaint,
claim, demand, or notice has been filed or commenced against any of them
alleging any failure so to comply.
(l) TAX MATTERS.
17
(i) The Company has filed all Tax Returns that it was required
to file. All such Tax Returns were materially correct and complete
in all respects. All Taxes owed by the Company (whether or not shown
on any Tax Return) have been paid. The Company currently is not the
beneficiary of any extension of time within which to file any Tax
Return. No claim has ever been made by an authority in a
jurisdiction where the Company does not file Tax Returns that it is
or may be subject to taxation by that jurisdiction. There are no
Security Interests on any of the assets of the Company that arose in
connection with any failure (or alleged failure) to pay any Tax.
(ii) The Company has withheld and paid all Taxes required to
have been withheld and paid in connection with amounts paid or owing
to any employee, independent contractor, creditor, stockholder, or
other third party.
(iii) No Seller or director or officer (or employee
responsible for Tax matters) of the Company expects any authority to
assess any additional Taxes for any period for which Tax Returns
have been filed. Except for the matter described in Schedule 2.3(l)
of the Disclosure Schedule, there is no dispute or claim concerning
any Tax Liability of the Company either (A) claimed or raised by any
authority in writing or (B) as to which any of the Seller and the
directors and officers (and employees responsible for Tax matters)
of the Company has Knowledge, based upon personal contact with any
agent of such authority. Section 2.3(l) of the Disclosure Schedule
lists all federal, state, local, and foreign income Tax Returns
filed with respect to the Company for taxable periods ended on or
after August 31, 1994, indicates those Tax Returns that have been
audited, and indicates those Tax Returns that currently are the
subject of audit. The Seller has delivered to the Buyer correct and
complete copies of all federal income Tax Returns, examination
reports, and statements of deficiencies assessed against or agreed
to by the Company since August 31, 1992.
(iv) The Company has not waived any statute of limitations in
respect of Taxes or agreed to any extension of time with respect to
a Tax assessment or deficiency.
(v) The Company is not a party to any Tax allocation or
sharing agreement. The Company (A) has not been a member of an
Affiliated Group filing a consolidated federal income Tax Return
(other than a group the common parent of which was the Company) or
(B) has no Liability for the Taxes of any Person (other than the
Company) under Treas. Reg. Section 1.1502-6 (or any similar
provision of state, local, or foreign law), as a transferee or
successor, by contract, or otherwise.
(vi) Section 2.3(l) of the Disclosure Schedule sets forth the
following information with respect to the Company as of the most
recent practicable date (A) the basis of the Company in its assets
and (B) the amount of any net operating loss,
18
net capital loss, unused investment or other credit, unused foreign
tax, or excess charitable contribution allocable to the Company.
(vii) The unpaid Taxes of the Company did not, as of the Most
Recent Fiscal Year End, exceed the reserve for Tax Liability (rather
than any reserve for deferred Taxes established to reflect timing
differences between book and Tax income) set forth on the face of
the Most Recent Balance Sheet (rather than in any notes thereto).
(m) REAL PROPERTY.
(i) The Company does not own real property.
(ii) Except for the properties listed and described in Section
2.3(m)(ii) of the Disclosure Schedule, the Company does not lease or
sublease any real property. The Sellers have delivered to the Buyer
correct and complete copies or descriptions of the leases listed in
Section 2.3(m)(ii) of the Disclosure Schedule (as amended to date).
With respect to each lease listed in Section 2.3(m)(ii) of the
Disclosure Schedule:
(A) the lease is legal, valid, binding, enforceable, and
in full force and effect;
(B) no party to the lease is in breach or default, and
no event has occurred which, with notice or lapse of time,
would constitute a breach or default or permit termination,
modification, or acceleration thereunder; and
(C) the Company has not assigned, transferred, conveyed,
mortgaged, deeded in trust, or encumbered any interest in the
leasehold.
(n) OWNED INTELLECTUAL PROPERTY. Section 2.3(n) of the Disclosure
Schedule sets forth a list of Intellectual Property owned by the Company.
With respect to each of such item of Intellectual Property:
(i) the Company is the sole and exclusive owner and has the
sole and exclusive right to use the item in the conduct of the
Business;
(ii) no proceedings have been instituted, are pending or are
threatened which challenge the validity, enforceability, use or
ownership thereof; and
(iii) the item (A) does not infringe upon or otherwise violate
the rights of others, (B) is not being infringed upon by others, (C)
is not subject to any outstanding order, decree, judgment,
stipulation or charge.
19
To the best Knowledge of the Company and the Sellers, there are no
inventions, new products or methods of manufacturing or processing
developed by any competitors or others which are expected by the Company
or the Sellers to supersede or make obsolete the products or processes of
the Company within 18 months of the date hereof.
(o) SOFTWARE. Section 2.3(o) of the Disclosure Schedule sets forth a
list describing all of the Software of others which the Company uses that
is material to the Company's Business. With respect to each such item of
Software:
(i) a license agreement covering the item has been validly
executed and delivered by the Company and by the other parties
thereto and is in full force and effect;
(ii) no event has occurred which constitutes a breach of such
license agreement, the Company has not repudiated and no other party
thereto has repudiated any provisions thereof and there are no
disputes, oral arrangements or delayed payments programs in effect
as to any such license agreement.
(p) BUSINESS ACTIVITY. The Company has not infringed,
misappropriated or otherwise violated any intellectual property rights of
third parties, nor does the Company have any Knowledge of any
infringement, misappropriation or violation which will occur as a result
of the continued operation of the Company's business as now conducted or
as presently proposed to be conducted.
(q) TANGIBLE ASSETS. The Company owns or leases all buildings,
machinery, equipment, and other tangible assets necessary for the conduct
of their businesses as presently conducted and as presently proposed to be
conducted. Each such tangible asset is substantially free from defects
(patent and latent), has been maintained in accordance with normal
industry practice, is in good operating condition and repair (subject to
normal wear and tear), and is suitable for the purposes for which it
presently is used. A correct and complete list of all such properties and
assets (other than properties and assets described in Sections 2.3(n) and
2.3(o)) is set forth in Section 2.3(q) of the Disclosure Schedule.
(r) CONTRACTS. Section 2.3(r) of the Disclosure Schedule lists the
following contracts and other agreements to which the Company is a party:
(i) any agreement (or group of related agreements) for the
lease of personal property to or from any Person;
(ii) any agreement (or group of related agreements) for the
purchase or sale of raw materials, commodities, supplies, products,
or other personal property, or for the furnishing or receipt of
services, the performance of which will extend over a
20
period of more than one year, result in a material loss to the
Company, or involve consideration in excess of $25,000;
(iii) any agreement (or group of related agreements) under
which it has created, incurred, assumed, or guaranteed any
indebtedness for borrowed money, or any capitalized lease
obligation, or under which it has imposed a Security Interest on any
of its assets, tangible or intangible;
(iv) any agreement concerning confidentiality or
noncompetition;
(v) any agreement with any of the Sellers or their Affiliates
(other than the Company);
(vi) any profit sharing, stock option, stock purchase, stock
appreciation, deferred compensation, severance, or other plan or
arrangement for the benefit of its current or former directors,
officers, and employees;
(vii) any agreement for the employment of any individual on a
full-time, part-time, consulting, or other basis providing annual
compensation in excess of $20,000 or providing severance benefits;
or
(viii) any agreement or contract with clients or customers
pursuant to which the Company is presently providing or is expected
to provide services; or
(ix) any agreement under which the consequences of a default
or termination could have an adverse effect on the business,
financial condition, operations, results of operations, or future
prospects of the Company.
The Seller has delivered to the Buyer a correct and complete copy of each
written agreement listed in Section 2.3(r) of the Disclosure Schedule (as
amended to date) and a written summary setting forth the terms and
conditions of each oral agreement referred to in Section 2.3(r) of the
Disclosure Schedule. With respect to each such agreement: (A) the
agreement is legal, valid, binding, enforceable, and in full force and
effect; (B) the agreement will continue to be legal, valid, binding,
enforceable, and in full force and effect on identical terms following the
consummation of the transactions contemplated hereby; (C) no party is in
breach or default, and no event has occurred which with notice or lapse of
time would constitute a breach or default, or permit termination,
modification, or acceleration, under the agreement; and (D) no party has
repudiated any provision of the agreement.
(s) NOTES AND ACCOUNTS RECEIVABLE. All notes and accounts receivable
of the Company are reflected properly on their books and records, and will
be collected in accordance with their terms at their recorded amounts.
21
(t) POWERS OF ATTORNEY. Except as described in Section 2.3(t) of the
Disclosure Schedule, there are no outstanding powers of attorney executed
on behalf of the Company.
(u) INSURANCE. Section 2.3(u) of the Disclosure Schedule sets forth
the following information with respect to each insurance policy (including
policies providing property, casualty, liability, and workers'
compensation coverage and bond and surety arrangements) to which the
Company has been a party, a named insured, or otherwise the beneficiary of
coverage at any time within the past three years:
(i) the name, address, and telephone number of the agent;
(ii) the name of the insurer, the name of the policyholder,
and the name of each covered insured;
(iii) the policy number and the period of coverage;
(iv) the scope (including an indication of whether the
coverage was on a claims made, occurrence, or other basis) and
amount (including a description of how deductibles and ceilings are
calculated and operate) of coverage; and
(v) a description of any retroactive premium adjustments or
other loss-sharing arrangements.
With respect to each such insurance policy: (A) the policy is legal,
valid, binding, enforceable, and in full force and effect; (B) the policy
will continue to be legal, valid, binding, enforceable, and in full force
and effect on identical terms following the consummation of the
transactions contemplated hereby; (C) neither the Company nor any other
party to the policy is in breach or default (including with respect to the
payment of premiums or the giving of notices), and no event has occurred
which, with notice or the lapse of time, would constitute such a breach or
default, or permit termination, modification, or acceleration, under the
policy; and (D) no party to the policy has repudiated any provision
thereof. The Company has been covered during the past three years by
insurance in scope and amount customary and reasonable for the businesses
in which it has engaged during the aforementioned period. Section 2.3(u)
of the Disclosure Schedule describes any self-insurance arrangements
affecting the Company.
(v) LITIGATION. Section 2.3(v) of the Disclosure Schedule sets forth
each instance in which the Company (i) is subject to any outstanding
injunction, judgment, order, decree, ruling, or charge or (ii) is a party
or is threatened to be made a party to any action, suit, proceeding,
hearing, or investigation of, in, or before any court or quasi-judicial or
adminis trative agency of any federal, state, local, or foreign
jurisdiction or before any arbitrator. Unless specifically noted in
Section 2.3(v) of the Disclosure Schedule, none of the actions, suits,
proceedings, hearings, and investigations set forth in Section 2.3(v) of
the Disclosure
22
Schedule could result in any adverse change in the business, financial
condition, operations, results of operations, or future prospects of the
Company. None of the Sellers and the directors and officers (and employees
with responsibility for litigation matters) of the Company has any reason
to believe that any such action, suit, proceeding, hearing, or
investigation may be brought or threatened against the Company.
(w) WARRANTY. Each service sold or delivered by the Company has been
in conformity with all applicable contractual commitments and performed in
accordance with industry standards.
(x) EMPLOYEES. To the Knowledge of the Seller and the directors and
officers of the Company, no executive, key employee, or group of employees
has any plans to terminate employment with the Company. The Company is not
a party to or bound by any collective bargaining agreement, nor has it
experienced any strikes, grievances, claims of unfair labor practices, or
other collective bargaining disputes. The Company has not committed any
unfair labor practice. None of the Seller and the directors and officers
(and employees with responsibility for employment matters) of the Company
has any Knowledge of any organizational effort presently being made or
threatened by or on behalf of any labor union with respect to employees of
the Company.
(y) EMPLOYEE BENEFITS. The Company does not maintain nor ever has
maintained or contributes, ever has contributed, or ever has been required
to contribute to any Employee Benefit Plan. The Company has no liability
for any contribution to any Employee Benefit Plan.
(z) GUARANTIES. The Company is not a guarantor or otherwise is
liable for any Liability or obligation (including indebtedness) of any
other Person.
(aa) ENVIRONMENT, HEALTH, AND SAFETY. The Company has complied with
all Environmental, Health, and Safety Laws, and no action, suit,
proceeding, hearing, investigation, charge, complaint, claim, demand, or
notice has been filed or commenced against the Company alleging any
failure so to comply. Without limiting the generality of the preceding
sentence, the Company has obtained and has been in compliance with all of
the terms and conditions of all of its permits, licenses, and other
authorizations under all Environmental, Health, and Safety Laws.
(bb) CERTAIN BUSINESS RELATIONSHIPS. None of the Sellers and their
Affiliates has been involved in any business arrangement or relationship
with the Company within the past 12 months, and none of the Sellers or
their Affiliates either owns any asset, tangible or intangible, which is
used in the Business of the Company or is owed any amount by the Company.
23
(cc) DISCLOSURE. The representations and warranties contained in
this Section 2.3 do not contain any untrue statement of a material fact or
omit to state any material fact necessary in order to make the statements
and information contained in this Section 2.3 not misleading.
ARTICLE III.
CONDUCT AND TRANSACTIONS PRIOR TO CLOSING
3.1 GENERAL. The Parties agree that with respect to the period between the
execution of this Agreement and the Closing, each of the Parties will use his or
its best efforts to take all action and to do all things necessary, proper, or
advisable in order to consummate and make effective the transactions
contemplated by this Agreement (including satisfaction, but not waiver, of the
closing conditions set forth in Article V below).
3.2 NOTICES AND CONSENTS. The Sellers will cause the Company to give any
notices to third parties, and will cause the Company to obtain any third-party
consents in connection with the matters referred to in Sections 2.3(d) above.
3.3 OPERATION OF BUSINESS. Each of the Sellers covenants and agrees that,
prior to the Closing, unless Buyer shall otherwise agree and except as otherwise
expressly contemplated or permitted by this Agreement, the Sellers will not
cause or permit the Company to engage in any practice, take any action, or enter
into any transaction outside the Ordinary Course of Business. Without limiting
the generality of the foregoing, the Sellers will not cause or permit the
Company to (i) declare, set aside, or pay any dividend or make any distribution
with respect to its capital stock or redeem, purchase, or otherwise acquire any
of its capital stock, (ii) create any Subsidiaries, or (iii) otherwise engage in
any practice, take any action, or enter into any transaction of the sort
described in Section 2.3(i) above.
3.4 PRESERVATION OF BUSINESS. The Sellers will (i) cause the Company to
keep its Business and properties substantially intact, keep in full force and
effect all rights, licenses, permits and authorizations relating to its Business
or properties, keep available the services of its officers and employees as a
group and maintain satisfactory relationships with suppliers, distributors,
customers and others having business relationships with the Company; (ii) report
on a regular basis to representatives of Buyer regarding operational matters and
the general status of ongoing operations; (iii) not take any action which would
render any representation or warranty made by the Company in this Agreement
untrue at any time prior to the Closing if then made; and (iv) notify Buyer of
any emergency or other change in the normal course of its Business or in the
operation of its properties and of any tax audits, tax claims, governmental or
third party complaints, investigation or hearings (or communications indicating
that the same may be contemplated) if such emergency, change, audit, claim,
complaint, investigation or hearing would reasonably be material, individually
or in the aggregate, to the financial condition, results of operations or
Business of the Company, or to the Company's and Buyer's ability to consummate
the transactions contemplated by this Agreement.
24
3.5 FULL ACCESS. The Sellers will permit, and the Sellers will cause the
Company to permit, representatives of the Buyer to have full access, at all
reasonable times, to all premises, properties, personnel, books, records
(including Tax records), contracts, and documents of or pertaining to the
Company.
3.6 NOTICE OF DEVELOPMENTS. The Sellers will give prompt written notice to
the Buyer of any material adverse development causing a breach of any of the
representations and warranties in Section 2.1 or 2.3 above. Each Party will give
prompt written notice to the others of any material adverse development causing
a breach of any of his or its own representations and warranties contained in
Article II above. No disclosure by any Party pursuant to this Section 3.6,
however, shall be deemed to amend or supplement the Disclosure Schedule or to
prevent or cure any misrepresentation, breach of warranty, or breach of
covenant.
3.7 EXCLUSIVITY. The Sellers will not (and the Sellers will not cause or
permit the Company to) (i) solicit, initiate, or encourage the submission of any
proposal or offer from any Person relating to the acquisition of any capital
stock or other voting securities, or any substantial portion of the assets of,
the Company (including any acquisition structured as a merger, consolidation, or
share exchange) or (ii) participate in any discussions or negotiations
regarding, furnish any information with respect to, assist or participate in, or
facilitate in any other manner any effort or attempt by any Person to do or seek
any of the foregoing. The Sellers will notify the Buyer immediately if any
Person makes any proposal, offer, inquiry, or contact with respect to any of the
foregoing.
3.8 CONFIDENTIALITY.
(a) All Confidential Information (as hereafter defined), acquired by
any Party with respect to any other Party shall be (i) maintained in
strict confidence, (ii) used only for the purpose of and in connection
with evaluating the transactions contemplated by this Agreement, and (iii)
disclosed only to employees and duly authorized agents and representatives
of receiving Party who have been informed of the obligations of such
Party's under this Section 3.8. The Party will take all reasonable
measures to restrain its representatives and agents from prohibited or
unauthorized disclosure of Confidential Information. For purposes of this
Agreement, "Confidential Information" shall mean all information acquired
by a Party from another Party with respect to such Party, other than
information generally available to the public, other than as a result of
disclosure by the receiving Party in violation of this Section 3.8 and
information which is rightfully disclosed to receiving Party on a
nonconfidential basis from a source other than the other Party or its
representatives, provided such source is not known by the receiving Party
to be bound by a confidentiality agreement with, or other obligation of
secrecy to, another Party. If the transactions contemplated by this
Agreement are not consummated, all Confidential Information in written or
printed or other tangible form (either copies or originals) shall be
returned to disclosing Party.
25
(b) In the event that a receiving Party is requested or required (by
oral question or request for information or documents in any legal
proceeding, interrogatory, subpoena, civil investigative demand, or
similar process) to disclose any Confidential Information, the receiving
Party will notify the Seller promptly of the request or requirement so
that the Seller may seek an appropriate protective order or waive
compliance with the provisions of this Section 3.8. If, in the absence of
a protective order or the receipt of a waiver hereunder, the receiving
Party is, on the advice of counsel, compelled to disclose any Confidential
Information to any tribunal or else stand liable for contempt, the
receiving Party may disclose the Confidential Information to the tribunal;
provided, however, that the disclosing Party shall use his or its
reasonable best efforts to obtain, at the request of the disclosing Party,
an order or other assurance that confidential treatment will be accorded
to such portion of the Confidential Information required to be disclosed
as the Sellers shall designate.
ARTICLE IV.
POST-CLOSING COVENANTS
4.1 GENERAL. If, at any time after the Closing, any further action is
necessary or desirable to carry out the purposes of this Agreement, each of the
Parties will take such further action (including the execution and delivery of
such further instruments and documents) as any other Party reasonably may
request, all at the sole cost and expense of the requesting Party (unless the
requesting Party is entitled to indemnification therefor under Article VI
below). Each of the Sellers acknowledges and agrees that from and after the
Closing, the Buyer will be entitled to possession of all documents, books,
records (including Tax records), agreements, and financial data of any sort
relating to the Company and each of the Sellers shall have reasonable access to
such documents, books, records (including Tax records), agreements, and
financial data of any sort relating to the Company, during normal business
hours.
4.2 LITIGATION SUPPORT. In the event and for so long as any Party actively
is contesting or defending against any action, suit, proceeding, hearing,
investigation, charge, complaint, claim, or demand in connection with (i) any
transaction contemplated under this Agreement or (ii) any fact, situation,
circumstance, status, condition, activity, practice, plan, occurrence, event,
incident, action, failure to act, or transaction on or prior to the Closing Date
involving the Company, each of the other Parties will cooperate with him or it
and his or its counsel in the contest or defense, make available their
personnel, and provide such testimony and access to their books and records as
shall be necessary in connection with the contest or defense, all at the sole
cost and expense of the contesting or defending Party (unless the contesting or
defending Party is entitled to indemnification therefor under Article VI below).
4.3 TRANSITION. None of the Sellers will take any action that is designed
or intended to have the effect of discouraging any lessor, licensor, customer,
supplier, or other business associate of the Company from maintaining the same
business relationships with the Company and after the Closing as it maintained
with the Company prior to the Closing.
26
4.4 COMPLIANCE WITH SECURITIES LAWS. No Seller shall make any sale,
transfer or other disposition of any Buyer Common Stock at any time if such
action would constitute (i) a violation of the registration requirements of any
federal or state securities or blue sky laws, (ii) a breach of any condition to
any exemption from registration of the Buyer Common Stock under any such laws,
or (iii) a breach of any undertaking or agreement of such Seller entered into
pursuant to such laws or in connection with obtaining an exemption thereunder.
Each of the Sellers shall comply with the requirements of Rule 144 of the
Securities Act. Prior to any proposed disposition of any Buyer Stock by any
Seller (excluding any shares of Buyer Stock offered or sold in compliance with
the Registrations Rights Agreement), such Seller shall provide to Buyer an
unqualified written opinion of legal counsel, which counsel and opinion (in form
and substance) shall be reasonably satisfactory to Buyer, to the effect that the
proposed disposition is in compliance with this Section 4.4 and that the
proposed disposition is permitted by this Agreement. Any certificate
representing shares of the Buyer Stock shall bear appropriate legends
restricting the sale or other transfer of such Buyer Stock in accordance with
applicable federal or state securities or blue sky laws and in accordance with
the provisions of this Agreement.
ARTICLE V.
CONDITIONS OF CLOSING
5.1 CONDITIONS OF OBLIGATIONS OF THE BUYER. The obligations of the Buyer
to consummate the transactions to be performed by it in connection with the
Closing are subject to satisfaction of the following conditions:
(a) the representations and warranties set forth in Section 2.1 and
Section 2.3 above shall be true and correct in all material respects at
and as of the Closing Date;
(b) the Sellers shall have performed all obligations and agreements
and complied with all of their covenants in this Agreement in all material
respects at or before the Closing;
(c) the Company and/or the Sellers shall provide evidence,
satisfactory to Buyer, that there have been obtained all consents,
approval and authorizations required for the consummation of the
transactions contemplated by this Agreement;
(d) no action, suit, or proceeding shall be pending or threatened
before any court or quasi-judicial or administrative agency of any
federal, state, local, or foreign jurisdiction or before any arbitrator
wherein an unfavorable injunction, judgment, order, decree, ruling, or
charge would (A) prevent consummation of any of the transactions
contemplated by this Agreement, (B) cause any of the transactions
contemplated by this Agreement to be rescinded following consummation, (C)
affect adversely the right of the Buyer to own the Acquired Shares and to
control the Company, or (D) affect adversely the right of the Company to
own its assets and to operate the Business (and no such injunction,
judgment, order, decree, ruling, or charge shall be in effect);
27
(e) the Sellers shall have delivered to the Buyer a certificate
dated as of the Closing Date and executed by each of the Sellers and the
President of the Company to the effect that each of the conditions
specified above in Sections 5.1(a) to 5.1(d) is satisfied in all respects;
(f) The Company and each Seller shall have executed and delivered an
Employment Agreement in substantially the form for each Seller attached as
EXHIBITS 1.5A, 1.5B AND 1.5C hereto.
(g) The Buyer and the Sellers shall have executed and delivered the
Registration Rights Agreement in substantially the form attached as
EXHIBIT 1.6 hereto.
(h) The Company and Xxxxxx X. Xxxxx shall have executed and
delivered a Lease Agreement covering the Company's corporate headquarters
on terms and conditions satisfactory to Buyer.
(i) The Sellers and the Company shall have consummated the Debt
Restructuring and all transactions related thereto to the satisfaction of
the Buyer, and the Sellers shall provide the Buyer with such documents or
information as the Buyer may reasonably request to evidence the
consummation of the Debt Refinancing.
(j) The Sellers and the Buyer shall have executed and delivered the
Escrow Agreement in substantially the form attached as EXHIBIT 1.3 hereto,
and all deposits shall have been made in accordance with the terms and
conditions thereof.
(k) the Buyer shall have received from Xxxxxxx X. Xxxxxxx, counsel
to the Sellers, an opinion acceptable to the Buyer, addressed to the
Buyer, dated as of the Closing Date and addressing the matters referred to
in Sections 2.1(a), (b) and (d) and 2.3(a)-(d) above;
(l) The investigation by Buyer and its representatives in connection
with the transactions contemplated by this Agreement shall not have caused
the Buyer or its representatives to become aware of any material facts or
circumstances relating to the Business, operations, assets, properties,
liabilities, financial condition, results of operation or affairs of the
Company that, in the sole judgment of the Buyer, make its inadvisable for
the Buyer to proceed with the purchase of the Acquired Shares;
(m) Buyer's board of directors shall have approved and authorized
this Agreement and the transactions contemplated by this Agreement; and
(n) the Buyer shall have received from the Company copies of the
Company's unaudited financial statements for the months ended on September
30, October 31 and November 30, 1997, no less than ten (10) days after
completion of such financial statements;
28
(o) all actions to be taken by the Sellers in connection with
consummation of the transactions contemplated hereby and all certificates,
opinions, instruments, and other documents required to effect the
transactions contemplated hereby will be satisfactory in form and
substance to the Buyer.
The Buyer may waive any condition specified in this Section 5.1 if it executes a
writing so stating at or prior to the Closing.
5.2 CONDITIONS OF OBLIGATIONS OF THE SELLERS. The obligations of the
Sellers to consummate the transactions to be performed by them in connection
with the Closing are subject to satisfaction of the following conditions:
(a) the representations and warranties set forth in Section 2.2
above shall be true and correct in all material respects at and as of the
Closing Date;
(b) the Buyer shall have performed and complied with all of its
covenants hereunder in all material respects through the Closing;
(c) the Buyer shall provide evidence, satisfactory to the Company
and/or Seller, that there have been obtained all consents, approval and
authorizations required for the consummation of the transactions
contemplated by this Agreement;
(d) no action, suit, or proceeding shall be pending before any court
or quasi-judicial or administrative agency of any federal, state, local,
or foreign jurisdiction or before any arbitrator wherein an unfavorable
injunction, judgment, order, decree, ruling, or charge would (A) prevent
consummation of any of the transactions contemplated by this Agreement,
(B) cause any of the transactions contemplated by this Agreement to be
rescinded following consummation (and no such injunction, judgment, order,
decree, ruling, or charge shall be in effect), or (C) affect adversely the
right of the Seller to own the Buyer Common Stock;
(e) the Buyer shall have delivered to the Sellers a certificate to
the effect that each of the conditions specified above in Sections 5.2(a)
to 5.2(c) is satisfied in all respects;
(f) the Seller shall have received from Chamberlain, Hrdlicka,
White, Xxxxxxxx & Xxxxxx, counsel to the Buyer, an opinion acceptable to
the Sellers, addressed to the Sellers, dated as of the Closing Date and
addressing the matters referred to in Sections 2.2(a)-(c) and (f) above;
(g) all actions to be taken by the Buyer in connection with
consummation of the transactions contemplated hereby and all certificates,
opinions, instruments, and other documents required to effect the
transactions contemplated hereby will be satisfactory in form and
substance to the Sellers, and Buyer shall provide to Seller a copy of each
of the text of
29
the resolutions adopted by the Board of Directors of Buyer authorizing the
execution, delivery, and performance of the Agreement.
The Sellers may waive any condition specified in this Section 5.2 if they
execute a writing so stating at or prior to the Closing.
ARTICLE VI.
REMEDIES FOR BREACHES OF AGREEMENT
6.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All of the representations
and warranties of the Parties contained in this Agreement shall survive the
Closing hereunder (even if the damaged Party knew or had reason to know of any
misrepresentation or breach of warranty at the time of Closing) and continue in
full force and effect for a period of eighteen (18) months thereafter, except
for representations regarding Company's Tax Liabilities, which representations
will expire and be terminated on the date of expiration of the statute of
limitations for collection of such Tax Liability in question.
6.2 INDEMNIFICATION PROVISIONS FOR BENEFIT OF THE BUYER.
(a) In the event any of the Sellers breaches (or in the event any
third party alleges facts that, if true, would mean any of the Sellers has
breached) any of their representations, warranties, and covenants
contained herein and, provided that the Buyer makes a written claim for
indemnification against any of the Sellers pursuant to Section 7.9 below
within the survival period specified in Section 6.1 hereof, then each of
the Sellers agrees to indemnify the Buyer from and against the entirety of
any Adverse Consequences the Buyer may suffer through and after the date
of the claim for indemnification (including any Adverse Consequences the
Buyer may suffer after the end of the survival period) resulting from,
arising out of, relating to, in the nature of, or caused by the breach (or
the alleged breach). Notwithstanding the foregoing to the contrary, none
of the Sellers shall be required to indemnify the Buyer from any Adverse
Consequences pursuant to this Section 6.2(a) until the Buyer has suffered
Adverse Consequences in excess of a $100,000 aggregate threshold (at which
point the Sellers will be obligated to indemnify the Buyer from and
against all such Adverse Consequences in excess of such threshold). There
shall be excluded from the Sellers' indemnification obligations in this
Section 6.2(a) those indemnification obligations specifically set forth in
Section 6.2(d) relating to certain tax information reporting requirements.
(b) Each of the Sellers agrees to indemnify the Buyer from and
against the entirety of any Adverse Consequences the Buyer may suffer
resulting from, arising out of, relating to, in the nature of, or caused
by any Liability of the Company for the unpaid Taxes of any Person (other
than the Company) under Treas. Reg. Section 1.1502-6 (or any similar
provision of state, local, or foreign law), as a transferee or successor,
by contract, or otherwise.
30
(c) Notwithstanding the foregoing to the contrary, the Sellers'
indemnification obligations under Section 6.2(a) and (b) hereof shall not
exceed $400,000, in the aggregate. The individual indemnification
obligations of each Seller under such provisions shall not exceed
$133,333. Seller shall be given an option (i) to satisfy any
indemnification obligation of a Seller hereunder by canceling shares of
the Buyer Common Stock (valued at the current market price but not less
than $4.00 per share) issued to such Seller equaling such Seller's
indemnity obligations hereunder, or (ii) to satisfy any indemnification
obligation of a Seller hereunder in cash. Each of the Sellers hereby
agrees that certificates representing 33,334 shares of the Buyer Common
Stock to be issued to such Seller shall be endorsed with a restrictive
legend evidencing such Seller's indemnification obligations hereunder.
Such restrictive legend shall be removed after eighteen months from the
Closing Date upon request by the Seller.
(d) In addition to the other indemnification obligations of Sellers
contained in this Agreement, the Sellers jointly and not severally, agree
to indemnify the Buyer and the Company from and against any Adverse
Consequences (including the Company's attorneys' fees) up to a maximum of
$225,000 which the Buyer may suffer resulting from, arising out of,
relating to, in the nature of, or caused by a claim asserted by the
Internal Revenue Service for certain taxes, penalties and interest
regarding the Company's alleged obligation to file Forms 1099 (and pay
backup withholding taxes) in connection with the amounts that the Company
pays to landowners in order to conduct operations on their properties.
Sellers' indemnification obligations under this Section 6.2(d) shall be
satisfied in accordance with the provisions of the Escrow Agreement
described in Section 1.3 above.
6.3 INDEMNIFICATION PROVISIONS FOR BENEFIT OF THE SELLERS. In the event
the Buyer breaches (or in the event any third party alleges facts that, if true,
would mean the Buyer has breached) any of its representations, warranties, and
covenants contained herein, provided that any of the Sellers makes a written
claim for indemnification against the Buyer pursuant to Section 7.9 below within
the survival period specified in Section 6.1 hereof, then the Buyer agrees to
indemnify each of the Sellers from and against the entirety of any Adverse
Consequences the Seller may suffer through and after the date of the claim for
indemnification (including any Adverse Consequences the Seller may suffer after
the end of the survival period) resulting from, arising out of, relating to, in
the nature of, or caused by the breach (or the alleged breach); provided,
however, that Buyer's indemnification obligations under this Agreement shall not
exceed $400,000 (except that the foregoing limitation on survival period
specified in Section 6.1 hereof and on Buyers indemnification obligations shall
not apply to breaches of Section 2.2(f)).
6.4 MATTERS INVOLVING THIRD PARTIES.
(a) If any third party shall notify any Party (the "INDEMNIFIED
PARTY") with respect to any matter (a "THIRD PARTY CLAIM") which may give
rise to a claim for indemnification against any other Party (the
"INDEMNIFYING PARTY") under this Article VI, then the Indemnified Party
shall promptly notify each Indemnifying Party thereof in writing;
provided, however, that no
31
delay on the part of the Indemnified Party in notifying any Indemnifying
Party shall relieve the Indemnifying Party from any obligation hereunder
unless (and then solely to the extent) the Indemnifying Party thereby is
prejudiced.
(b) Any Indemnifying Party will have the right to defend the
Indemnified Party against the Third Party Claim with counsel of its choice
reasonably satisfactory to the Indemnified Party so long as (A) the
Indemnifying Party notifies the Indemnified Party in writing within
fifteen (15) days after the Indemnified Party has given notice of the
Third Party Claim that the Indemnifying Party will indemnify the
Indemnified Party from and against the entirety of any Adverse
Consequences the Indemnified Party may suffer resulting from, arising out
of, relating to, in the nature of, or caused by the Third Party Claim, (B)
the Indemnifying Party provides the Indemnified Party with evidence
reasonably acceptable to the Indemnified Party that the Indemnifying Party
will have the financial resources to defend against the Third Party Claim
and fulfill its indemnification obligations hereunder, (C) the Third Party
Claim involves only money damages and does not seek an injunction or other
equitable relief, (D) settlement of, or an adverse judgment with respect
to, the Third Party Claim is not, in the good faith judgment of the
Indemnified Party, likely to establish a precedential custom or practice
materially adverse to the continuing business interests of the Indemnified
Party, and (E) the Indemnifying Party conducts the defense of the Third
Party Claim actively and diligently.
(c) So long as the Indemnifying Party is conducting the defense of
the Third Party Claim in accordance with Section 6.4(b) above, (A) the
Indemnified Party may retain separate co-counsel at its sole cost and
expense and participate in the defense of the Third Party Claim, (B) the
Indemnified Party will not consent to the entry of any judgment or enter
into any settlement with respect to the Third Party Claim without the
prior written consent of the Indemnifying Party (not to be withheld
unreasonably), and (C) the Indemnifying Party will not consent to the
entry of any judgment or enter into any settlement with respect to the
Third Party Claim without the prior written consent of the Indemnified
Party (not to be withheld unreasonably).
(d) In the event any of the conditions in Section 6.4(b) above is or
becomes unsatisfied, however, (A) the Indemnified Party may defend
against, and consent to the entry of any judgment or enter into any
settlement with respect to, the Third Party Claim in any manner it
reasonably may deem appropriate (and the Indemnified Party need not
consult with, or obtain any consent from, any Indemnifying Party in
connection therewith), (B) the Indemnifying Parties will reimburse the
Indemnified Party promptly and periodically for the costs of defending
against the Third Party Claim (including reasonable attorneys' fees and
expenses), and (C) the Indemnifying Parties will remain responsible for
any Adverse Consequences the Indemnified Party may suffer resulting from,
arising out of, relating to, in the nature of, or caused by the Third
Party Claim to the fullest extent provided in this Article VI.
32
6.5 OTHER INDEMNIFICATION PROVISIONS. The foregoing indemnification
provisions are in addition to, and not in derogation of, any statutory,
equitable, or common law remedy any Party may have for breach of representation,
warranty, or covenant.
ARTICLE VII.
MISCELLANEOUS
7.1 TERMINATION OF AGREEMENT. Certain of the Parties may terminate this
Agreement as provided below:
(a) the Buyer and the Requisite Sellers may terminate this Agreement
by mutual written consent at any time prior to the Closing;
(b) the Buyer may terminate this Agreement by giving written notice
to the Requisite Sellers at any time prior to the Closing (A) in the event
any of the Sellers has breached any material representation, warranty, or
covenant contained in this Agreement in any material respect, the Buyer
has notified the Seller of the breach, and the breach has continued
without cure for a period of ten (10) days after the notice of breach or
(B) if the Closing shall not have occurred on or before January 8, 1998,
by reason of the failure of any condition precedent under Section 5.1
above (unless the failure results primarily from the Buyer itself
breaching any representation, warranty, or covenant contained in this
Agreement); and
(c) the Requisite Sellers may terminate this Agreement by giving
written notice to the Buyer at any time prior to the Closing (A) in the
event the Buyer has breached any material representation, warranty, or
covenant contained in this Agreement in any material respect, the
Requisite Sellers have notified the Buyer of the breach, and the breach
has continued without cure for a period of ten (10) days after the notice
of breach or (B) if the Closing shall not have occurred on or before
January 8, 1998, by reason of the failure of any condition precedent under
Section 5.2 hereof (unless the failure results primarily from any of the
Sellers breaching any representation, warranty, or covenant contained in
this Agreement).
7.2 EFFECT OF TERMINATION. If any Party terminates this Agreement pursuant
to Section 7.1 above, all rights and obligations of the Parties hereunder shall
terminate without any Liability of any Party to any other Party (except for any
Liability of any Party then in breach).
7.3 PRESS RELEASES AND PUBLIC ANNOUNCEMENTS. No Party shall issue any
press release or make any public announcement relating to the subject matter of
this Agreement prior to the Closing without the prior written approval of the
Buyer and the Seller; provided, however, that any Party may make any public
disclosure it believes in good faith is required by applicable law or any
listing or trading agreement concerning its publicly-traded securities (in which
case the disclosing Party will use its reasonable best efforts to advise the
other Parties prior to making the disclosure).
33
7.4 NO THIRD-PARTY BENEFICIARIES. This Agreement shall not confer any
rights or remedies upon any Person other than the Parties and their respective
successors and permitted assigns.
7.5 ENTIRE AGREEMENT. This Agreement (including the documents referred to
herein) constitutes the entire agreement among the Parties and supersedes any
prior understandings, agreements, or representations by or among the Parties,
written or oral, to the extent they related in any way to the subject matter
hereof including, without limitation, the Letter of Intent.
7.6 SUCCESSION AND ASSIGNMENT. This Agreement shall be binding upon and
inure to the benefit of the Parties named herein and their respective successors
and permitted assigns. No Party may assign either this Agreement or any of his
or its rights, interests, or obligations hereunder without the prior written
approval of the Buyer and the Seller; provided, however, that the Buyer may (i)
assign any or all of its rights and interests hereunder to one or more of its
Affiliates and (ii) designate one or more of its Affiliates to perform its
obligations hereunder (in any or all of which cases the Buyer nonetheless shall
remain responsible for the performance of all of its obligations hereunder).
7.7 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original but all of which
together will constitute one and the same instrument.
7.8 HEADINGS. The section headings contained in this Agreement are
inserted for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
7.9 NOTICES. All notices, requests, demands, claims, and other
communications hereunder will be in writing. Any notice, request, demand, claim,
or other communication hereunder shall be deemed duly given if (and then two
business days after) it is sent by registered or certified mail, return receipt
requested, postage prepaid, and addressed to the intended recipient as set forth
below:
IF TO THE SELLERS OR THE COMPANY RELIABLE EXPLORATION, INC.
000 XXXXXXX XXXX
XXXXXXXX, XX 00000
ATTENTION: XXXXX XXXX, XXX XXXXXXXX AND
XXXXX XXXXXXX
COPY TO: XXXXXXX LAW FIRM, P.C.
SUITE 710, FIRST INTERSTATE BANK BUILDING
000 X. 00XX XXXXXX
XXXXXXXX, XX 00000
ATTENTION: XXXXXXX X. XXXXXXX
IF TO BUYER: GEOKINETICS INC.
0000 XXX XXXXXX, XXXXX 000
XXXXXXX, XXXXX 00000
34
ATTENTION: XXXX X. XXXXXX
COPY TO: CHAMBERLAIN, HRDLICKA, WHITE,
XXXXXXXX & XXXXXX
0000 XXXXX XXXXXX, XXXXX 0000
XXXXXXX, XXXXX 00000
ATTENTION: XXXXX X. SPRING, III
Any Party may send any notice, request, demand, claim, or other communication
hereunder to the intended recipient at the address set forth above using any
other means (including personal delivery, expedited courier, messenger service,
telecopy, telex, ordinary mail, or electronic mail), but no such notice,
request, demand, claim, or other communication shall be deemed to have been duly
given unless and until it actually is received by the intended recipient. Any
Party may change the address to which notices, requests, demands, claims, and
other communications hereunder are to be delivered by giving the other Parties
notice in the manner herein set forth.
7.10 GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of Texas without giving effect to any
choice or conflict of law provision or rule (whether of the State of Montana or
any other jurisdiction) that would cause the application of the laws of any
jurisdiction other than the State of Texas.
7.11 AMENDMENTS AND WAIVERS. No amendment of any provision of this
Agreement shall be valid unless the same shall be in writing and signed by the
Buyer and the Requisite Sellers. No waiver by any Party of any default,
misrepresentation, or breach of warranty or covenant hereunder, whether
intentional or not, shall be deemed to extend to any prior or subsequent
default, misrepresen tation, or breach of warranty or covenant hereunder or
affect in any way any rights arising by virtue of any prior or subsequent such
occurrence.
7.12 SEVERABILITY. Any term or provision of this Agreement that is invalid
or unenforceable in any situation in any jurisdiction shall not affect the
validity or enforceability of the remaining terms and provisions hereof or the
validity or enforceability of the offending term or provision in any other
situation or in any other jurisdiction.
7.13 EXPENSES. Each of the Parties will bear its own costs and expenses
(including legal fees and expenses) incurred in connection with this Agreement
and the transactions contemplated hereby. The Seller agrees that the Seller will
bear the Seller's costs and expenses (including Seller's legal fees and
expenses) in connection with this Agreement or any of the transactions
contemplated hereby; PROVIDED, HOWEVER, that Buyer agrees to reimburse up to
$15,000 of Seller's legal fees and expenses actually incurred and directly
related to this Agreement and the transactions contemplated hereby.
7.14 CONSTRUCTION. The Parties have participated jointly in the
negotiation and drafting of this Agreement. In the event an ambiguity or
question of intent or interpretation arises, this
35
Agreement shall be construed as if drafted jointly by the Parties and no
presumption or burden of proof shall arise favoring or disfavoring any Party by
virtue of the authorship of any of the provisions of this Agreement. Any
reference to any federal, state, local, or foreign statute or law shall be
deemed also to refer to all rules and regulations promulgated thereunder, unless
the context requires otherwise. The word "including" shall mean including
without limitation. The Parties intend that each representation, warranty, and
covenant contained herein shall have independent significance. If any Party has
breached any representation, warranty, or covenant contained herein in any
respect, the fact that there exists another representation, warranty, or
covenant relating to the same subject matter (regardless of the relative levels
of specificity) which the Party has not breached shall not detract from or
mitigate the fact that the Party is in breach of the first representation,
warranty, or covenant.
7.15 INCORPORATION OF EXHIBITS AND SCHEDULES. The Exhibits and Schedules
identified in this Agreement are incorporated herein by reference and made a
part hereof.
7.16 SPECIFIC PERFORMANCE. Each of the Parties acknowledges and agrees
that the other Parties would be damaged irreparably in the event any of the
provisions of this Agreement are not performed in accordance with their specific
terms or otherwise are breached. Accordingly, each of the Parties agrees that
the other Parties shall be entitled to an injunction or injunctions to prevent
breaches of the provisions of this Agreement and to enforce specifically this
Agreement and the terms and provisions hereof in any action instituted in any
court of the United States or any state thereof having jurisdiction over the
Parties and the matter (subject to the provisions set forth in Section 7.17
below), in addition to any other remedy to which they may be entitled, at law or
in equity.
7.17 SUBMISSION TO JURISDICTION. Each of the Parties submits to the
jurisdiction of any federal court sitting in Houston, Texas, in any action or
proceeding arising out of or relating to this Agreement and agrees that all
claims in respect of the action or proceeding may be heard and determined in any
such court. Each of the Parties waives any defense of inconvenient forum to the
maintenance of any action or proceeding so brought and waives any bond, surety,
or other security that might be required of any other Party with respect
thereto. Each Seller appoints Xxxxxxx X. Xxxxxxx (the "SELLERS' PROCESS AGENT")
as his agent to receive on his behalf service of copies of the summons and
complaint and any other process that might be served in the action or proceeding
during the eighteen (18) months following Closing. Each of Buyer and the Company
appoints Xxxxx X. Spring, III (the "BUYER'S PROCESS AGENT") as its agent to
receive on its behalf services of copies of the summons and complaint and any
other process that might be served in the action or proceeding during the
eighteen (18) months following Closing. Any Party may make service on any other
Party by sending or delivering a copy of the process (i) to the Party to be
served at the address and in the manner provided for the giving of notices in
Section 7.9 above or (ii) to the Party to be served in care of the Sellers'
Process Agent or the Buyer's Process Agent, as appropriate, at the address and
in the manner provided for the giving of notices in Section 7.9 above. Nothing
in this Section 7.17, however, shall affect the right of any Party to serve
legal process in any other manner permitted by law or at equity. Each Party
agrees that a final judgment in any action or proceeding so brought shall
36
be conclusive and may be enforced by suit on the judgment or in any other manner
provided by law or at equity.
7.18 ATTORNEYS' FEES. In the event that the employment of counsel by any
party becomes necessary to enforce this Agreement, the non-prevailing party
agrees to pay the prevailing party's reasonable attorneys' fees, court costs,
and all other reasonable costs and expenses incurred by the prevailing party as
a result of enforcing its rights under this Agreement.
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement on as
of the date first above written.
BUYER:
GEOKINETICS INC.
XXXXXXX XXXX, VICE PRESIDENT
SELLERS:
XXXXX XXXX (INDIVIDUALLY)
XXXXX XXXXXXX (INDIVIDUALLY)
XXX XXXXXXXX (INDIVIDUALLY)
37
TABLE OF CONTENTS (Cont'd.)
COMPANY:
RELIABLE EXPLORATION, INC.
XXXXX XXXX, PRESIDENT
i
EXHIBIT 1.3A
(TO STOCK PURCHASE AGREEMENT)
ESCROW AGREEMENT
EXHIBIT 1.3B
(TO STOCK PURCHASE AGREEMENT)
ALLOCATION OF PURCHASE PRICE
EXHIBIT 1.5A
(TO STOCK PURCHASE AGREEMENT)
EMPLOYMENT AGREEMENT
EXHIBIT 1.5B
(TO STOCK PURCHASE AGREEMENT)
EMPLOYMENT AGREEMENT
EXHIBIT 1.5C
(TO STOCK PURCHASE AGREEMENT)
EMPLOYMENT AGREEMENT
EXHIBIT 1.6
(TO STOCK PURCHASE AGREEMENT)
REGISTRATION RIGHTS AGREEMENT
EXHIBIT 2.3(H)
(TO STOCK PURCHASE AGREEMENT)
FINANCIAL STATEMENTS
DISCLOSURE SCHEDULE
Pursuant to Paragraph 2.3 of the Stock Purchase Agreement the Sellers hereby
make the following Disclosures:
(a) The Directors of the Company are Xxxxx Xxxx, Xxxxx Xxxxxxx and Xxx
Xxxxxxxx. The officers of the Company are: President, Xxxxx Xxxx,
Vice-President Xxxxx Xxxxxxx, Secretary Xxxxxxx Xxxxxxxx, and, Treasurer
Xxxxxxx Xxxxxxxx.
The Company has been issued the Notice of Revocation dated January 13, 1998, by
the U.S. Department of Treasury - Bureau of Alcohol, Tobacco and Firearms which
is attached hereto as EXHIBIT B. Said Notice also references an April 27, 1997
explosion which ripped through Xxxxxxx Xxxxxxx'x home in Olivehurst, California,
and disclosure is hereby made. Said Notice states that if the Revocation of
License were to be appealed, a Request for Hearing must be filed with the
District Director within fifteen (15) days after receipt of the Notice. Finally,
27 C.F.R. ss. 55.57 requires written notification within thirty (30) days of a
change in stock ownership or control of the Corporation.
(c) (i) The Company is authorized to issue 500,000 shares of common stock
with a par value of $ .10 per share.
(ii) The Company has issued and outstanding 600 shares of common stock
with Xxxxx Xxxx holding 200 shares, Xxxxx Xxxxxxx holding 200 shares
and Xxx Xxxxxxxx holding 200 shares.
(iii) There are no shares of its capital stock held in treasury.
(l) The Internal Revenue Service has asserted a claim against the Company for
certain taxes, penalties and interest regarding the Company's alleged
obligation to file Forms 1099 (and pay backup withholding tax) in
connection with the amounts that the Company pays to landowners in order
to gain access to and perform work on their properties. The Company's
accountant has been released from any liability related to the Form 1099
audit.
The Company has filed the federal, state, local and foreign income Tax
Returns for taxable periods ended on or after August 31, 1994 as set forth
in the attached EXHIBIT 1.
BASIS OF THE COMPANY IN ITS ASSETS
Basis of Assets as of 08/31/97 -- $1,993,563
NET OPERATING LOSSES
As of 08/31/97 -- None
NET CAPITAL LOSSES
As of 08/31/97 -- None
UNUSED INVESTMENT OR OTHER CREDIT
As of 08/31/97 -- None
UNUSED FOREIGN TAX
As of 08/31/97 -- None
EXCESS CHARITABLE CONTRIBUTION
As of 08/31/97 -- None
(m) The Company is presently leasing from the Xxxxx Family Trust real property
in Billings, Montana. The said lease will be replaced with a new lease
which provides a remaining term of 11 years and 11 months.
(n) The Company does not own any Intellectual Property.
(o) The Company does not own any Software.
(q) Set forth in EXHIBIT 2 is a list of all machinery, equipment and other
tangible assets.
(r) The Company is a party to the following Contracts:
(ii) Agreement for the purchase or sale of raw materials, commodities,
supplies, products, or other personal property, or for the furnishing or
receipt of services, the performance of which will extend over a period of
more than one year, result in a material loss to the Company, or involve
consideration in excess of $25,000.
None
(iii) The Company has executed a Promissory Note with an original balance
of $2,000,000 in favor of Xxxxxx X. Xxxxx which will be amended and
restated as part of the Stock Purchase Agreement. Related to the
Promissory Note the Company has imposed a Security Interest on its
inventory, accounts, chattel paper and instruments, documents, equipment,
general intangibles, intellectual property, rights to payment of money,
books, correspondence, credit files, records, invoices, bills of lading
and all accession and additions to, parts and appurtenances of,
substitutions for and replacements of, proceeds, and products and all
proceeds of any of the foregoing, as evidences in a Security Agreement
executed July 27, 1995 with the Company as Grantor and Xxxxxx X. Xxxxx as
the Secured Party. The Company has no other Agreements regarding
indebtedness for borrowed money, or any capitalized lease obligation, or
under which it has imposed a Security Interest.
(iv) The Company has entered into a Non-Compete Agreement with Xxxxxx X.
Xxxxx which prohibits him from competing with the company for a period of
3 years beginning on July 27, 1995.
(v) There are no agreements with any of the Sellers or their Affiliates.
(vi) There are no profit sharing, stock option, stock purchase, stock
appreciation, deferred compensation, severance, or other plan or
arrangement for the benefit of the Company's current or former directors,
officers, and employees other than a Stock Redemption
Agreement with Xxxxxx X. Xxxxx which will be restated as part of the Stock
Purchase Agreement.
(vii) The Company has set forth in EXHIBIT 3 a list of individuals
employed at an annual compensation in excess of $20,000 or providing
severance benefits.
(viii)The Company has set forth in EXHIBIT 4 a list of contracts with
clients or customers pursuant to which the Company is presently providing
or is expected to provide services:
(ix) The Company has previously listed and there are no other agreements
under which the consequences of a default or termination could have an
adverse effect on the business, financial condition, operations, results
of operations, or future prospects of the Company.
In reference to the Stock Redemption Agreement with Xxxxxx X. Xxxxx,
the Company anticipates executing an amended and restated Redemption
Agreement, Promissory Note, and Lease which will not contain identical
terms following the consummation of the transactions contemplated hereby.
Related to the same transaction are a Security Agreement, Uniform
Commercial Code Financing Statement (Form FS-1) and Non-Compete Agreement
with Xxxxxx X. Xxxxx which will contain identical terms following the
consummation of the transactions contemplated hereby. Collateral
Assignments and a Consulting Agreement with Xxxxxx X. Xxxxx will be
canceled and will not be on identical terms following the consummation of
the transactions contemplated hereby.
(u) Within the past three years the Company has had the following insurance
coverage:
PROPERTY, CASUALTY AND LIABILITY:
(i) Name, address, and telephone number of the agent:
The Insurance Exchange, Inc.
Xxxxxxx X. Xxxxx
X.X. Xxx 0000
Xxxxxxxx, Xxxxxxx 00000
(000) 000-0000
(ii) Name of insurer, name of policyholder, and name of each covered
insured:
United States Fidelity and Guaranty Company, insurer
Reliable Exploration, Incorporated, policy holder and insured
(iii) Policy number and period of coverage:
1MP 301242513 01 (present coverage 04/01/97 to 04/01/98)
(iv) Scope (coverage on a claims made, occurrence, or other basis) amount
(describing how deductibles and ceilings are calculated and operate) of
coverage:
COMMERCIAL PROPERTY:
Building ($118,976 limit of insurance) 90% Coinsurance
Personal Property ($58,240 limit of insurance) 90% Coinsurance
COMMERCIAL GENERAL LIABILITY:
$ 2,000,000 General Aggregate Limit (Other than Products-Completed
Operations) $ 2,000,000 Products-Completed Operations Aggregate Limit $
1,000,000 Personal and Advertising Injury Limit $ 1,000,000 Each
Occurrence Limit $ 50,000 Fire Damage Limit (Any One Fire) $ 5,000 Medical
Expenses Limit (Any One Person)
BUSINESS AUTO
Liability $1,000,000 (for any one accident or loss)
Uninsured Motorist$ 100,000
EMPLOYERS LIABILITY
(v) Retroactive premium adjustments or other loss-sharing arrangements
None
BONDS AND SURETY
The Company has set forth in EXHIBIT 5 the following information
pertaining to its bond and surety arrangements.
(i) Name, address, and telephone number of the agent:
(ii) Name of insurer, name of policyholder, and name of each covered
insured: (iii) Policy number and period of coverage: (iv) Scope (coverage
on a claims made, occurrence, or other basis) amount (describing how
deductibles and ceilings are calculated and operate) of coverage: (v)
Retroactive premium adjustments or other loss-sharing arrangements
